Massive Taxes On Energy Sector Will Further Destroy Our Economy

For the past few months President Obama has called for massive taxes on the US oil industry and to eliminate oil industry tax breaks.

It is self evident that President Obama has no idea what are the consequences of such a proposed tax increase on the oil and natural gas industry, which is a critical US industry.

Several years ago we formed the Department of Energy to make the US less dependent on foreign imports of oil and natural gas. Years later we are much more dependent on foreign sources of oil and gas. The import of foreign oil and gas drains our nation of US dollars and weakens the dollar substantially. For example the US dollar has fallen 45% against the Brazil currency in the past few years. Brazil is a strong oil and gas producing nation.

The best example of destruction of high taxes on an oil and natural gas industry is the UK. This year the UK has raised oil and gas production taxes from 62% to 81%, depending on the age of the producing field. In addition it will restrict tax relief on decommissioning , now capped at 20% against the 32% Supplementary Charge (SC). The Oil & Gas , UK, an industry association, estimates that 60 projects , with a capex of $35.7 billion, are at risk of moving forward. For mature fields the 81% tax will prohibit further investments to improve production. The UK taxes will cripple the UK oil and gas production with a major impact on future tax revenue and the strength of the currency. The Oil & Gas UK estimates the 2010 UK offshore investment of about 10 billion will fall to less than $2 billion in 2020 with the new taxes rates.

The tax in essence devalues UK oil and gas assets about 23%.

A massive increase in US oil and gas taxes will have a comparable negative impact on our currency, consumers,economy, and increased imports. Such taxes will be a disaster.